I have developed a SAAS application that I would like to launch as a free service. Will a free offering have lesser/zero liability vs a paid one? I find the thought of incorporation with all the associated paperwork and annual fees a bit daunting considering (A)the service is free, (B) likely no sales/profit from the service for at least a year, maybe more, until the underlying model is proven/evolves.
What is the liability risk for a free SAAS service?
To what extent does one risk personal assets for a free SAAS, in the absence of incorporation?
Generally the idea goes that if you incorporate as a limited liability company, if something goes wrong, you can only be held liable against the value of your company. Being negligent is the exception to the rule.
Filing fees vary by jurisdiction. Most American startups incorporate in Delaware. Most of the time you can incorporate for under $500 if you go without a lawyer. The paperwork really isn't that hard, and nobody will come and arrest you for honest mistakes. You can worry about accounting until after you start earning money.
When you bring multiple founders into the mix, choosing the right corporate bylaws is where it begins to get legally tricky. A lawyer is then a good idea. You can get a startup lawyer to incorporate your team's company with the right bylaws for under $1K.
Regardless if your idea works out, its a good idea to keep all your products and ideas behind a single company anyway.
I recently incorporated as an LLC in Oregon. I did it online, it took me about 30 minutes and it cost $100. I don't know if it will be significantly more difficult where you are, but it is at least worth a look.
I can't speak to saas specifically, but in general software has a "it's not our fault if you are harmed by using this" clause in the licence. For example here is an excerpt from the licence for using iTunes
B. YOU EXPRESSLY ACKNOWLEDGE AND AGREE THAT, TO THE EXTENT PERMITTED BYand here is the relevant section from Google's terms of service :
APPLICABLE LAW, USE OF THE APPLE SOFTWARE AND ANY SERVICES PERFORMED BY OR
ACCESSED THROUGH THE APPLE SOFTWARE IS AT YOUR SOLE RISK AND THAT THE
ENTIRE RISK AS TO SATISFACTORY QUALITY, PERFORMANCE, ACCURACY AND EFFORT IS
Our Warranties and DisclaimersSo the long and the short of it is... I would (a) incorporate, because why not? and especially if you are eventually considering charging for your service, (b) make a user agreement/ software license that absolves you of any guilt (and following google's example this does not even have to be extremely overt with respect to the user's experience) (c) don't provide some sort of wildly malicious, negligent or illegal service which would override (a) and (b).
We provide our Services using a commercially reasonable level of skill and care and we hope that you will enjoy using them. But there are certain things that we don’t promise about our Services.
OTHER THAN AS EXPRESSLY SET OUT IN THESE TERMS OR ADDITIONAL TERMS, NEITHER GOOGLE NOR ITS SUPPLIERS OR DISTRIBUTORS MAKE ANY SPECIFIC PROMISES ABOUT THE SERVICES. FOR EXAMPLE, WE DON’T MAKE ANY COMMITMENTS ABOUT THE CONTENT WITHIN THE SERVICES, THE SPECIFIC FUNCTIONS OF THE SERVICES, OR THEIR RELIABILITY, AVAILABILITY, OR ABILITY TO MEET YOUR NEEDS. WE PROVIDE THE SERVICES “AS IS”.
SOME JURISDICTIONS PROVIDE FOR CERTAIN WARRANTIES, LIKE THE IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT. TO THE EXTENT PERMITTED BY LAW, WE EXCLUDE ALL WARRANTIES.
Liability for our Services
WHEN PERMITTED BY LAW, GOOGLE, AND GOOGLE’S SUPPLIERS AND DISTRIBUTORS, WILL NOT BE RESPONSIBLE FOR LOST PROFITS, REVENUES, OR DATA, FINANCIAL LOSSES OR INDIRECT, SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES.
TO THE EXTENT PERMITTED BY LAW, THE TOTAL LIABILITY OF GOOGLE, AND ITS SUPPLIERS AND DISTRIBUTORS, FOR ANY CLAIMS UNDER THESE TERMS, INCLUDING FOR ANY IMPLIED WARRANTIES, IS LIMITED TO THE AMOUNT YOU PAID US TO USE THE SERVICES (OR, IF WE CHOOSE, TO SUPPLYING YOU THE SERVICES AGAIN).
IN ALL CASES, GOOGLE, AND ITS SUPPLIERS AND DISTRIBUTORS, WILL NOT BE LIABLE FOR ANY LOSS OR DAMAGE THAT IS NOT REASONABLY FORESEEABLE.
Disclaimer: I am not a legal professional, any advice given here is not guaranteed and should be used at your own risk.